NetLink NBN Trust - DBS Research 2020-08-06: Offers A Decent 5% Yield


NetLink NBN Trust - Offers A Decent 5% Yield

  • NetLink Trust's 1QFY21 results broadly in line.
  • Residential connections slowing after migration of StarHub (SGX:CC3)’s customers to fibre.
  • Stock currently trades at c.5% forward yield.
  • Maintain HOLD, Target Price S$1.02.

NetLink Trust's 1QFY21 results broadly in line.

  • NetLink Trust (SGX:CJLU)’s 1QFY21 revenue and NPAT of S$89.0m and S$23.5m were -3.3% y-o-y/-3.8% q-o-q and +12.3% y-o-y/+88.3% q-o-q respectively, broadly in line with our estimates. Higher residential connections were offset by lower installation-related revenue following migration of StarHub’s customers to fibre.
  • Diversion revenue was also lower during circuit breaker period. EBITDA margin improved to 73.6% (FY19 69.8%) due to higher proportion of revenue from residential connections and almost S$2m in government relief grants received during the quarter.

Residential fibre connections growth has slowed along expected lines.

  • As of 30 June 2020, NetLink Trust’s residential connections grew 0.1% q-o-q to reach 1.43m connections. NetLink Trust’s residential fibre connections growth has slowed down as StarHub customers’ migration to fibre is now completed. Current fibre penetration for residential connections is ~95%, which should reach 100% in 2-3 years.

Non-residential fibre and Non-building access points (NBAP) connections mixed.

  • During the quarter, non-residential fibre connections declined 1.5% q-o-q due to impact from COVID-19 as service provisioning orders and site visits could not be carried out. NBAP connections and segment connections increased 5.5% and 3.6% q-o-q.
  • No DPU declared this quarter as expected (unchanged y-o-y).

Outlook and recommendation

Continuous efforts to densify networks.

  • Other than increasing residential connections in new homes, NetLink Trust continues to focus on densifying its network in terms of capacity and flexibility as it continues to build a resilient network and increase its presence in data centers to prepare to support 5G infrastructure. NetLink Trust would also benefit from government relief grants in 2Q21F and 3Q21F although the magnitude will be lower than 1Q21.

We maintain HOLD, TP$1.02.

Sachin MITTAL DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2020-08-06
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.020 SAME 1.020